Although a mutual fund is required to pass through all earnings and net gains to investors, the timing of those distributions is left up to the individual mutual fund companies. Based on the type of fund, most funds follow a similar pattern of dividend payments. Your fund statements or a fund's webpage will show you how often a particular fund pays out.
The dividends paid by a mutual fund come from the stock dividends or bond interest the fund earns from its portfolio of securities. The laws governing mutual funds require a fund to pass through all of these earnings net of the fund operating expenses. If a fund sells securities for a profit, the result is a capital gains. Net capital gains for the year must also be passed through in the form of capital gains distributions.
A bond mutual fund holds a portfolio of investment bonds. Bonds typically pay interest semi-annually, but the fund will earn interest every month since bonds can have semi-annual pay cycles using any two months of the year. As a result, the common distribution frequency for bond funds is to pay monthly dividends. Some funds strive to pay a steady monthly dividend and adjust the payout once a year based on portfolio earning. Other funds will pay out just what was earned for the month, resulting in fluctuating monthly dividends.
Stock and Balanced Funds
U.S. publicly traded companies typically pay dividends quarterly or four times a year. Stock mutual funds follow the lead of the stocks they own and also usually pay quarterly dividends. Balanced or hybrid mutual funds owning both stocks and bonds will use a quarterly dividend schedule. Some growth stock mutual funds that invest primarily in non-dividend paying stocks may only pay a dividend once a year to distribute what dividends a fund actually collected.
The mutual fund rules require net capital gains to be distributed once a year, and almost all mutual funds stick with an annual distribution at the end of the year. Capital gains distributions can be categorized as long- and short-term gains. An investor may receive two capital gains distributions on the same day to separate the long- and short-term results. A fund may not pay capital gains every year.
You can choose to reinvest dividends and/or capital gains into more mutual fund shares or have them paid out as cash. If you are expecting to receive dividends and the money is not arriving, check whether the dividends are being reinvested instead of paid to you. You can change the disposition of dividends and capital gains at any time with a phone call to the mutual fund company.